

[Federal Register: November 28, 2005 (Volume 70, Number 227)]
[Notices]               
[Page 71358-71360]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28no05-105]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52806; File No. SR-PCX-2005-88]

 
Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Order Granting Accelerated Approval to a Proposed Rule 
Change and Amendment Nos. 1 and 2 Relating to Dissemination of Index 
Values

November 18, 2005.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 27, 2005, the Pacific Exchange, Inc. (``PCX'' or ``Exchange''), 
through its wholly owned subsidiary PCX Equities, Inc. (``PCXE''), 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the PCX. The PCX filed Amendment Nos. 1 and 2 to 
the proposal on September 16, 2005, and October 27, 2005, 
respectively.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons. In addition, the Commission is granting accelerated approval 
of the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 clarified the time during which the current 
value of an index underlying a Portfolio Depositary Receipt or 
Investment Company Unit must be disseminated. Amendment No. 2, which 
replaced and superseded the original filing and Amendment No. 1 in 
their entirety, retained the clarification proposed in Amendment No. 
1 and, in addition, revised the proposal to provide that the last 
official calculated index value must remain available during any 
period when the official index value does not change.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX, through its wholly owned subsidiary PCXE, proposes to 
amend its rules governing the Archipelago Exchange (``ArcaEx''), the 
equities trading facility of PCXE. Specifically, the PCX proposes to 
amend the listing standards for Investment Company Units (``ICUs'') and 
Portfolio Depositary Receipts (``PDRs'') to provide that the current 
value of an index underlying a series of ICUs or PDRs must be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the time the ICU or PDR trades on ArcaEx. The proposed 
rules also provide that the last official calculated index value must 
remain available during any period when the official index value does 
not change. The text of the proposed rule change is available on the 
PCX's Web site (http://www.pacificex.com) and at the Commission's 

Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The PCX has prepared summaries, set forth in sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    PCXE Rule 5.2(j)(3), Commentary .01 and PCXE Rule 8.100, Commentary 
.01 provide listing standards for ICUs and PDRs, respectively, to 
permit the listing and trading of these securities pursuant to Rule 
19b-4(e) under the Act.\4\ Rule 19b-4(e) provides that the listing and 
trading of a new derivative securities product by a self-regulatory 
organization (``SRO'') will not be deemed a proposed rule change, 
pursuant to paragraph (c)(1) of Rule 19b-4, if the Commission has 
approved, pursuant to section 19(b) of the Act, the SRO's trading 
rules, procedures and listing standards for the product class that 
would include the new derivative securities product and the SRO has a 
surveillance program for the product class.\5\
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    \4\ 17 CFR 240.19b-4(e).
    \5\ See Securities Exchange Act Release No. 40761 (December 8, 
1998), 63 FR 70952 (December 22, 1998).
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    The Exchange's rules for ICUs and PDRs currently provide that the 
current value of an index underlying a series of ICUs or PDRs will be 
disseminated every 15 seconds over the consolidated tape. The Exchange 
believes that, rather than identifying specifically in its rules the 
index dissemination service (that is, the consolidated tape), it is 
preferable to reflect in its rules a requirement for wide dissemination 
of the underlying index values. Accordingly, the proposal revises the 
PCXE's rules to provide that the value of the underlying index must be 
widely disseminated by a reputable index dissemination service, such as 
the Consolidated Tape Association, Reuters, or Bloomberg. The Exchange 
believes that the specific identity of the index dissemination service 
is not necessary, and the purpose of the rules would be achieved, as 
long as the service used for dissemination is reputable, accepted in 
the investment community, and effects appropriately wide dissemination 
of the particular index.
    The Exchange therefore proposes to revise the listing standards for 
ICUs and PDRs to provide that the value of the underlying index must be 
widely disseminated by one or more major market data vendors at least 
every 15 seconds during the time when the ICU or PDR trades on ArcaEX.
    As currently is the case, if the official index value does not 
change during some or all of the period when trading is occurring (as 
is typically the case with pre-market-open and after-hours trading, and 
also with foreign indexes because of time zone differences or holidays 
in the countries where such indexes' components trade), then the last 
official calculated index value must remain available during the time 
the ICU or PDR trades on ArcaEx.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\6\ in general, and furthers the 
objectives of section 6(b)(5),\7\ in particular, because it is designed 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and to protect investors and 
the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

[[Page 71359]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-PCX-2005-88 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.

All submissions should refer to File Number SR-PCX-2005-88. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, all 

written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of the PCX. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make publicly available. All 
submissions should refer to File Number SR-PCX-2005-88 and should be 
submitted on or before December 19, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange. In particular, the Commission finds that the 
proposed rule change, as amended, is consistent with section 6(b)(5) of 
the Act,\8\ which requires, among other things, that the rules of a 
national securities exchange be designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest.\9\ The proposal amends 
the PCXE's rules to provide that the current value of an index 
underlying a series of ICUs or PDRs must be widely disseminated by one 
or more major market data vendors at least every 15 seconds during the 
time the ICU or PDR trades on ArcaEx. In its proposal, the PCX states 
that ``one or more major market data vendors'' would include the 
Consolidated Tape Association or private vendors, such as Reuters or 
Bloomberg. The Commission believes, however, that it is critical that 
such service widely disseminate such index values to market 
participants. The Commission notes that the rules of several other SROs 
contain an identical index dissemination requirement,\10\ and that the 
proposed index dissemination requirement is similar to the index 
dissemination requirement used in the listing standards for narrow-
based index options.\11\ The Commission believes that the index 
dissemination requirement will help to ensure the transparency of 
current index values for indexes underlying series of ICUs and PDRs.
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    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving this proposal, the Commission has considered 
the proposal's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \10\ See, e.g., Amex Rules 1000, Commentary .03; and 1000A, 
Commentary .02 (listing standards for PDRs and Index Fund Shares); 
NASD Rule 4420(i) and (j) (listing standards for PDRs and Index Fund 
Shares); and Phlx Rule 803(i) and (l) (listing standards for Trust 
Shares and Index Fund Shares). See also Amex Order, Phlx Order, and 
NASD Order at note 13, infra.
    \11\ See e.g., Chicago Board Options Exchange Rule 24.2(b); 
International Securities Exchange Rule 2002(b); Pacific Exchange 
Rule 5.13; and Philadelphia Stock Exchange Rule 1009A(b) (listing 
standards for narrow-based index options requiring that, among other 
things, the current underlying index value be reported at least once 
every 15 seconds during the time the index option trades on the 
exchange).
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    The PCX's rules also provide that the last official calculated 
index value must remain available during any period when the official 
index value does not change. As stated above, the PCX notes that 
periods when the official index value underlying an ICU or PDR do not 
change occur at the pre-market-open, during after-hours trading 
sessions, and for certain foreign indexes underlying an ICU or PDR, 
based on the time zone differences or foreign holidays.\12\ The 
Commission notes that this provision is consistent with other SRO 
proposals that the Commission has approved recently.\13\
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    \12\ Nothing herein is meant to address the situation of whether 
the ICU or PDR can actually remain trading when the primary market 
has halted or suspended trading in the underlying components or the 
official index provider ceases to disseminate and/or calculate the 
official index value during official day time trading hours. Rather, 
the provision is merely meant to address those times that the 
underlying value is unavailable on a real time basis because the 
marketplace for the component securities is not open for trading for 
legitimate business reasons, such as due to the time difference 
between the foreign and U.S. markets.
    \13\ See, e.g., Securities Exchange Act Release Nos. 52572 
(October 7, 2005), 70 FR 60125 (October 14, 2005) (notice of filing 
and order granting accelerated approval to File No. SR-PHLX-2005-57) 
(``Phlx Order''); 51868 (June 17, 2005), 70 FR 36672 (June 24, 2005) 
(notice of filing and order granting accelerated approval to File 
No. SR-Amex-2005-044) (``Amex Order''); and 51559 (April 15, 2005), 
70 FR 20787 (April 21, 2005) (notice of filing of File No. SR-NASD-
2005-024) (all noting that, if the official index value does not 
change during some or all of the time when trading is occurring, as 
is typically the case with pre-market open and after-hours trading, 
and also with foreign indexes due to time zone differences or 
holidays in the countries where the indexes' components trade, then 
the last official calculated index value must remain available 
throughout the market's trading hours). The Commission subsequently 
approved the NASD's proposal, as well as the proposals by the 
American Stock Exchange and the Philadelphia Stock Exchange. See 
Securities Exchange Act Release No. 51748 (May 26, 2005), 70 FR 
32684 (June 3, 2005) (order approving File No. SR-NASD-2005-024) 
(``NASD Order'').
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    The PCX has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of notice of filing thereof in the Federal Register. As 
noted above, the Commission has approved identical index dissemination 
requirements for other SROs.\14\ The Commission received no comments 
regarding these proposals. The Commission believes that granting 
accelerated approval of the PCX's proposal will allow the PCX to 
implement the same index dissemination requirement that the Commission 
has approved for other SROs, thereby helping the PCX to

[[Page 71360]]

compete with these markets. Accordingly, the Commission finds good 
cause, consistent with sections 6(b)(5) and 19(b) of the Act, to 
approve the proposed rule change, as amended, prior to the thirtieth 
day after the date of publication of notice of filing thereof in the 
Federal Register.
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    \14\ See Amex Order, NASD Order, and PHLX Order, supra note 13.
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-PCX-2005-88), as amended, is 
approved on an accelerated basis.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-6556 Filed 11-25-05; 8:45 am]

BILLING CODE 8010-01-P
